Property Tax Basics: Why Tax Liens Are Such Great Opportunities

First, you need to know a little bit about how your new opportunity in real estate arises in the first place.

Way back when, when creating counties and towns, local governments needed a way to raise money for common services, such public schools, police and firemen, etc. They figured that the local landowners should be taxed based on the value of their properties, figuring those who could afford the more valuable land could probably afford to pay relatively higher taxes.

One of the key things to keep in mind here is that land is appraised these days at what's called its "highest and best use" which means not what the land is worth to the current owner, but what it could be used for-such as a shopping mall or more lucrative undertaking. Farmland is not worth nearly as much as a housing development for instance, especially as the population of the world expands and more and more people need a place to live. It's those discrepancies in value that can run landowners into a problem.

An Example

A nice little family has owned an old farm on what was the edge of town for 50 years, but the town has expanded over time and now the farm is surrounded by shopping malls. The property taxes (based on the constantly increasing appraised value) have been going up at a rate that's more than the family has been able to afford. So now the county is owed back property taxes on that land, and if they aren't paid, the property will be headed toward foreclosure.

Now, what happens to that family that can't pay the taxes on the property? The local government has the legal right to collect those taxes in any way they can. This generally means that the local government sells the land through a "tax sale". The situation is pretty simple - the family can either pay the tax lien that's due on their farm, or give up the rights to that land and risk losing it during the tax sale process (either to the government, or to a
tax lien investor).

By putting yourself between the landowner and the government agency that holds the tax lien, you will be exactly where you need to be to potentially turn a big profit.

A Tax Lien Opportunity - A Quick Overview

Now let me give you a 'short version' of the logistics of a tax lien opportunity, and where your role can be:

A Tax Lien Opportunity

1. You find a property that has back taxes owed on it

2. You purchase (for a tiny fraction of the value of the property) the tax lien from the government agency that owns it because they don't want to deal with waiting around to collect their money

3. Now one of two things will happen:

A. the owner defaults on the taxes and the property is in foreclosure, which means the property is now owned by you!

- You can turn around and sell it for way less than market value and turn a nice fat profit, or potentially sell it at or above market and really cash in!

B. OR, the owner pays the taxes owed, plus interest, to you!

- Now you've made money (the interest) on your investment, usually at a significantly better rate than if you put the same amount in the stock market or with any other supposedly money making investment!

You can take control of a property and make money either way! The investment is secured by the property, so it's solid as a rock.

Now see why tax liens are such a great opportunity?